The Washington Post, which excluded any articles warning of the housing bubble from its oped page all through the period the crisis was building, again has a piece assuring readers that there is no problem in the housing market. The piece concludes that there has been no large-scale decline in housing prices based on the Office of Federal Housing Enterprise Oversight's (OFHEO) House Price Index. It dismisses the 14.1 percent year over year nominal decline in the Case-Shiller index because it is driven largely by price declines in homes purchased with subprime mortgages and jumbo mortgages, both of which are excluded from the OFHEO index. The article also reports research findings based on data in several cities that finds no feedback between rising foreclosures and falling prices. It concludes, based on these findings, that there is little basis for concern about a downward spiral in house prices. The grounds for dismissing the Case-Shiller data are questionable. While most of the stock of housing falls within the category covered by the OFHEO index, close to half of the sales in recent years would fall outside of the category covered by the index. Subprime and Alt-A mortgages accounted for 40 percent of all mortgages in 2006. In addition, the median house price in large parts of the country (e.g. California, New England) would have required jumbo mortgages and therefore also not been included in the OFHEO index. Any index that excludes such a large share of recent purchases is missing much of the movement in house prices. In addition, extrapolations from periods in which local periods experienced no extraordinary run-up in prices are not likely to be informative about periods following extraordinary price increases. The decline in the NASDAQ following the late 90s bubble could not have been predicted from any analysis of its price fluctuations in the 70s and 80s. The Post badly misled its readers during the bubble years by relying on David Lereah, the chief economist of the National Association of Realtors, as its leading expert on the housing market. (Mr. Lereah is also known as the author of the 2006 bestseller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.) It appears as though it is still misleading its readers about the state of the housing market.
--Dean Baker